Bank of International Settlements shoots a withering look at bitcoin and peers

The Bank of International Settlement - an organisation that provides financial services created to support the activities of central banks and other monetary authorities, as well as operating as a think-tank and analyst on financial matters - has said that it's "hard to identify a specific economic problem" that cryptocurrencies solve, and rubbished the prospects of the technology underpinning them becoming mainstream payments technology any time soon.

As a financial institution that acts as a bank to central banks, BIS serves as a voice of authority in this case.

"Money has value because it has users", says Hyun Song Shin, economic adviser and head of research.

One major find in the BISreport is the analysis that the blockchain technology will need a robust software to handle the enormous transactions on a national scale. That's based on a BIS calculation of what it would take for cryptocurrencies to process all the digital retail transactions now handled by national systems. Records of transactions are kept on a digital ledger.

"But the issue goes well beyond storage capacity, and extends to processing capacity: only supercomputers could keep up with verification of the incoming transactions.The associated communication volumes could bring the internet to a halt", it said.

Every bitcoin transaction also requires users to pay a fee to have it added to the digital ledger.

It is true that now Bitcoin would not be suitable as a means of payment if mass option took place since its transaction processing capacity maximum is estimated to be between 3.3 and 7 transactions per second.

It also noted the unstable value of cryptocurrencies, which has arisen from the lack of a central issuer guaranteeing its stability.

Despite such drawbacks, the report also pointed out the advantages of bitcoin, such as its potential use as part of "low-volume cross-border payment services", rather than as part of everyday transactions.

Because banks of computers solving complex algorithms verify the existence of currencies like bitcoin, the possibility exists for a global battle over computer storage capacity to overwhelm the entire internet.

In mainstream payment systems, once a payment goes through the central bank's books, it becomes final and can not be canceled. "Not only does this call into question the finality of individual payments, it also means that a cryptocurrency can simply stop functioning, resulting in a complete loss of value", it reads. "Since only one of the two updates can ultimately survive, the finality of payments made in each ledger version is probabilistic".

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